No. of Recommendations: 8
If the taxes paid by the "middle class" family will go down by $2000 per year, but the cost added to their purchases by tariffs will be $3000 peer year, ow much would their salary have to rise to compensate (as part of it is paid back as tax). Does "just breaking even" spike inflation causing a feedback loop?
Interesting question.
The emergence of general widespread inflation (rather than just a supply shock) is in large part a function of collective expectations. If people see prices rising around them, that adds to the pain and annoyance factor even if their pay is going up, so I would guess the answer is that yes, it would both BE inflation itself and tend to lead towards more inflation, e.g. people pre-emptively demanding raises.
It might be partly determined by the other big pain factor, unemployment. In a period of high employment when it's easy to get a new job, it might not cause as much of the anxiety that can cause inflationary pressures to diffuse through the economy. If the economy were weak at the same time, I think the inflationary effects would likely be stronger.
The best way to become an unpopular leader is to have the bad luck of being in office when inflation soars AND it's hard to get a job. This is only rarely or coincidentally the fault of the person in charge at the moment because the time lags from policy changes are quite long. But I suppose you could manage it if you put your mind to it.
Jim
